management of finance end of topic test

Question 1

owners personal finance

Answer 1

• owner can keep control of the business
• it can be difficult to withdraw savings once they have been invested into the business

Question 2

retained profits

Answer 2

• the business does not go into debt
• a business may find it hard to grow if it regularly uses retained profits, e.g. to solve short-term cash flow problems

Question 3

sale of assets

Answer 3

• the money does not need to be repaid
• if the finance is required regularly then the business may have to sell an asset for less than it is worth

Question 4

gross profit percentage

Answer 4

(gross profit/sales revenue) x100

Question 5

profit for the year percentage

Answer 5

(profit for the year/sales revenue) x100

Question 6

current ratio

Answer 6

current assets/current liabilities

Question 7

income statements

Answer 7

show the profit from buying and selling, known as the gross profit and the profit made after expenses are deducted from the gross profit, known as profit for the year

Question 8

statements of financial position

Answer 8

these show the items the business owns, known as assets, the items they owe, known as liabilities, and the overall value of the business.

Question 9

cash budgets show when there is going to be a surplus of cash. The effect of this is that…

Answer 9

it allows the business to plan for future purchases.

Question 10

cash budgets also show when the business is going to have a deficit. This means that…

Answer 10

it will allow the business to make adjustments to spending.

Question 11

finally, cash budgets allow the business to make comparisons between predicted and actual figures. The effect of this is that…

Answer 11

it helps monitor the business’s performance.

Question 12

distinguish between
profit for the year and gross profit

Answer 12

profit for the year is the profit made after expenses are deducted from gross profit
whereas
gross profit is the profit made from buying and selling.

Question 13

distinguish between
non-current assets and current assets

Answer 13

non-current assets are items owned for a period of more than a year
whereas
current-assets are items owned for a period of less than a year.

Question 14

uses of ratio analysis

Answer 14

• can compare against industry averages
• compare the performance of the business to previous years

Question 15

limitations of ratio analysis

Answer 15

• do not take external factors into account, e.g. recession
• do not take internal factors into account, e.g. low staff morale

Question 16

benefits of using spreadsheets

Answer 16

• formula can be replicated which saves time
• formula can be used, reducing the margin for error
• ‘what if?’ statements can be used to forecast the outcome of different scenarios